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JPY Sees Biggest Weekly Gain in 3 Months on Risk Rout

JPY Sees Biggest Weekly Gain in 3 Months on Risk Rout

2015-12-12 00:01:00
Tyler Yell, CMT, Currency Strategist
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JPY Sees Biggest Weekly Gain in 3 Months on Risk RoutJPY Sees Biggest Weekly Gain in 3 Months on Risk Rout

Fundamental Forecast for Yen:Bullish

  • The Japanese Yen Has Risen Against All 31 Of Its Major Peers In The Past Six Months, BoJ Meeting In View
  • Doubt Spills On BoJ’s Ability To Meet Inflation Target And Risk Sentiment May Takeover At Year End
  • For Up-To-Date And Real-Time Analysis On The Yen, Oil And Market Reactions To Economic Factors Currently ‘In The Air,’ Dailyfx On Demand Can Help.

When the Japanese Yen is best performer against the US Dollar over a week and is higher against 31 of its peers over a sixth month span, global markets are typically not ‘Bullish’. This time is no exception as global markets as per the MSCI Emerging Market Stock Index is down for 8 straight days, marking the largest slump since June. Additionally, the continual drop in energy with US Oil breaking $36 toward the 2008 lows of $32.40 and Iron Ore down for 9 straight weeks.

The Bank of Japan is expected to leave its policy unchanged at the policy-meeting schedule for December 17/18. Governor Kuroda will likely be the focus, but his confidence in the corporation’s steadiness could continue to disappoint those looking to another manufactured weakening of the JPY. If you remember, the Bank of Japan targeted a 2% inflation rate by 2017 and they vowed they would put the monetary policy in place to reach their goal. But, markets aren’t that simple, even when you through a few Trillion Yen at the problem. Thanks in large part to WTI Crude Oil, China, and other factors weakening inflation, it looks like they will not hit that target. The prospect of a Federal Reserve Rate hike may be nearly all priced in, but what could further hurt the prospects of reaching a 2% target would be a stronger JPY than what we’ve recently seen (think USDJPY ~ 100). A few top-tier investment banks are calling 2016, ‘The Year of the Yen’, in anticipation of further inaction from the BoJ that will continue to push down import prices and detract export demand.

The weekend Tankan Survey may provide new relief for the BoJ that has stayed optimistic about Japan’s economic pace due to the health of the corporate sector. If the survey comes out inline, they may continue their tone. Unfortunately for JPY bears, their tone hasn’t been one of more JPY weakening, which has left JPY resilient across the board. Either way, USDJPY should show its true colors next week as we get both the hotly anticipated Federal Reserve Announcement, in addition to the BoJ, which could provide the breakout traders have been wanting, but not getting for the past few months.

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